1. KNOWLEDGE CREATION AND ABSORPTION: THE REGIONAL DIMENSION Alessandro Sterlacchini UNIVERSITÀ POLITECNICA DELLE MARCHE a.sterlacchini@univpm.it KNOWLEDGE ECONOMY FORUM VII: Technology Absorption by Innovative Small and Medium Enterprises. Ancona, June 17-19, 2008.

2. Knowledge and economic growth Broad consensus on the positive relationship between knowledge investments and economic growth However, the linkage is far from being linear and cannot be taken for granted Countries and regions with different levels of development cannot reap equal benefits from investing the same amount of resources in the same directions Similar considerations apply to firms of different size

3. Knowledge and economic growth To exploit the existing stock of knowledge for commercial purposes some enabling conditions must be at work Absorption capacity (human capital) Transmission channels (university-industry relations) Filtering mechanisms (entrepreneurship) The above caveats emerge from many empirical studies and, especially, those concerned with regions (sub-national areas)

4. The regional dimension Due to its tacit elements, knowledge is not easily transferable so that positive externalities are strongly localised Accordingly, geographical proximity matters and the regional level is best suited for effective innovation policies In the EU, regional policies are key instruments for implementing the Lisbon strategy

5. EU Regional Policy (Structural Funds) 2007-2013 Two objectives: Competitiveness and employment: developed regions (GDP per capita 75% of the EU25 average) Convergence : less developed regions (GDP per capita< 75%)

7. Empirical background Sterlacchini, A., R. Esposti, N. Matteucci and F. Venturini (2005) Policy guidelines for regions falling under the new regional competitiveness and employment objective for the 2007-2013 period. Vol. I: Statistical analysis, Report prepared for the European Commission, DG Regional Policy. Sterlacchini, A. (2008) R&D, Higher Education and Regional Growth: Uneven Linkages Among European Regions, Research Policy.

8. STUDY ON POLICY GUIDELINES FOR COMPETITIVENESS REGIONS Knowledge and innovation indicators (R&D, patents, higher education, etc.) Factor analysis to obtain a synthetic indicator Identification of 3 regional groups (low, medium, high) Economic performance indicators (GDP per capita level, GDP growth, rate of unemployment, etc.) Factor analysis to obtain a synthetic indicator Identification of 3 regional groups Joint analysis of knowledge and economic performance indicators

9. Type and number of regions

10. KNOWLEDGE AND ECONOMIC GROWTH: analysis for all the regions of the EU15 Knowledge creation: intensity of R&D expenditures on regional value added Knowledge absorption: share of adult population with tertiary education Note: in the EU the level of secondary education is not a suitable indicator of knowledge absorption Economic growth: change in GDP per capita over 1995-2002

11. REGIONAL DIFFERENCES: For the developed regions both the intensity of R&D and higher education are effective drivers of GDP growth For the less developed regions only the extent of higher education is effective

12. GDP growth Vs. intensity of R&D

13. GDP growth Vs. intensity of Higher Education

14. COUNTRY DIFFERENCES (looking at developed regions only): The joint impact of R&D and higher education on regional growth is not significant for Southern European Countries (Austria, France, Italy and Spain)

15. GDP growth Vs. intensity of R&D and Higher Education (developed regions only) Inner London Cumbria (UK) North = Belgium, Finland, Germany, the Netherlands, Sweden, UK South = Austria, France, Italy, Spain

16. Evidence for the regions of Central European countries Replica of the previous exercise: R&D and higher education as drivers of regional GDP growth Provisional results Limited country coverage due to the poor availability of regional data: Czech Republic, Hungary, Poland and Slovak Republic

17. GDP growth Vs. intensity of R&D and Higher Education: Czech Republic, Hungary and Slovak Republic

18. GDP growth Vs. intensity of R&D and Higher education: Czech Republic, Hungary and Slovak Republic The positive relationship is almost exclusively due to the performances of central capital regions (note: this does not occur in Western Europe) To what extent the above relationship is simply due to agglomeration economies? How to deal with this dualistic pattern of regional growth (central Vs. peripheral regions)?

19. GDP growth Vs. intensity of R&D and Higher education: Poland

20. For Poland, the relationship is not significant In this sense, Poland can be assimilated to the Southern Countries of Western Europe Industrial specialization, FDI and geographical proximity to EU markets probably play a greater role than knowledge capabilities

21. Concluding remarks and policy considerations Remarkable differences across EU regions both in terms of knowledge potential and capability to exploit it Too much emphasis on knowledge creation and research infrastructures could be ineffective; moreover, it could increase rather than reduce regional disparities In the medium run, the less developed regions should pay particular attention to higher education, especially for improving the absorption capacity of SMEs With some qualifications, the above considerations can be extended to the countries of East Europe and Central Asia